Fink, Gross Say Standoff to Be Resolved With No Default

By Christopher Palmeri -
Oct 4, 2013

BlackRock Inc. (BLK)’s Laurence D. Fink and Pacific Investment Management Co.’s Bill Gross said the U.S. budget standoff will be resolved without a debt default.

The congressional dispute will end “very rapidly,” Fink said yesterday at an event hosted by the UCLA Anderson School of Management at the Beverly Hilton hotel in Beverly Hills, California, and streamed on CNBC.com.

“It’s theatrics posed by politicians to get ratings or to get their way via legislation,” Gross said. “It’s not a realistic proposition.”

A partial U.S. government shutdown entered a fourth day amid wrangling by lawmakers over the budget and debt limit. The U.S. will run out of borrowing authority Oct. 17 and will have $30 billion in cash after that. The country would be unable to pay all of its bills sometime between Oct. 22 and Oct. 31, according to the Congressional Budget Office.

The shutdown has furloughed about 800,000 federal employees and is becoming a prolonged deadlock that is merging with the debt-ceiling debate.

Financial markets suggest that most investors anticipate U.S. lawmakers will raise the limit on the nation’s debt and avoid a default on government securities, Pimco’s Mohamed El-Erian said.

‘Too Awful’

“The alternative would be too awful to contemplate,” El-Erian, chief executive officer at the world’s biggest manager of bond mutual funds, said on Bloomberg Television’s “In the Loop” with Betty Liu. “Most people in the market think we will avoid a debt-ceiling debacle.” El-Erian is also co-chief investment officer with Gross.

Billionaire investor Warren Buffett said politicians should stop using the nation’s borrowing authority as a bargaining chip in policy debates, comparing the practice to the threat of dropping a nuclear bomb.

“It ought to be banned as a weapon,” Buffett, 83, said in an interview with Fortune magazine posted online today. “It should be like nuclear bombs, basically too horrible to use.”

House Speaker John Boehner said the way to end the government shutdown would be for Democrats to negotiate with him and accept changes that would produce “fairness” under the Affordable Care Act.

Boehner, speaking to reporters after a private meeting with House Republicans, criticized an unidentified White House official quoted in The Wall Street Journal today as saying it doesn’t matter to the administration how long the shutdown lasts because Democrats are winning.

‘Invest Carefully’

Fink and Gross, whose firms oversee more than $5.8 trillion in combined assets, are both alumni of the Anderson School. Both said the U.S. is the best place to invest. Gross added that he wouldn’t take undue risks on higher-yield assets.

“I’d invest carefully and relatively short term and sacrifice the potentially higher yield,” said Gross, 69, who started Newport Beach, California-based Pimco in 1971 with two other co-founders.

“We live in a world of artificially compressed interest rates, and therefore artificially compressed returns,” Gross said.

The advantage that emerging markets had in terms of low labor costs is diminishing, said Fink, 60, who co-founded New York-based BlackRock in 1988 and as CEO has built it into the largest money manager, with $3.86 trillion in assets as of June 30. North America is gaining a manufacturing edge because of low energy costs, he said.

Mexican ‘Revolution’

Mexican President Enrique Pena Nieto’s decision to open up his country’s national oil monopoly will lead to an investment boom there, Fink said.

At one point, Fink and Gross had questions shouted at them by two audience members, one of whom identified himself as a representative of the Service Employees International Union. The two challenged the pair over BlackRock and Pimco seeking a court order blocking Richmond, California, from seizing mortgages through the legal process known as eminent domain so that the occupants can have their delinquent loans restructured. The hecklers were escorted from the room.

“The use of eminent domain for mortgages instead of real property is questionable,” Fink said. “It’s breaking quite a bit of what we would consider contract law. We’ll go to court and see who’s right.”

Gross said more regulation and higher taxes may be needed to address wage inequalities that have created animosity between the working class and corporate America.